A dismal government job growth report capped a week that saw oil prices soar and the stock market stumble, prompting fears that business conditions are faltering and intensifying the debate over the economy as the presidential race heats up.

The Labor Department said Friday that employers had created just 32,000 nonfarm jobs in July, far fewer than economists had expected. Officials also lowered the number of payroll jobs created in June to 78,000, down from their original calculation of 112,000.

The unemployment rate dipped to 5.5 percent in July, down from 5.6 percent in June. The decline in the unemployment rate, despite weak job growth, could be partly explained by the fact that self-employed and contract workers are counted as employed but are not reflected in the payroll job tally.

The employment news came at the end of a week in which the major stock indexes plunged to their lows for the year on fears that higher oil prices, weak job growth and flagging consumer spending could take the steam out of economic expansion.

In trading Friday, the Dow Jones industrial average slipped 147.70 to close at 9,815.33, down 3.1 percent for the week. The Standard & Poor's 500 retreated 16.73 to 1,063.97, off 3.2 percent for the week. The volatile Nasdaq took a steeper plunge of 44.74 to end at 1,776.89, off 5.4 percent for the week.

"There's a lot of just pure, naked fear out there," said Donald Luskin, chief investment officer with TrendMacrolytics, a Menlo Park investment research firm.

Much of Wall Street's worry focuses on the energy market. Crude oil prices this week soared as high as $44.77 a barrel Thursday before settling back to $44.02 on Friday. Oil prices have risen more than 30 percent this year, pushed up by factors as disparate as the shaky finances of the Russian oil giant Yukos and concern about disruptions in Middle East supplies.

Wells Fargo & Co. chief economist Sung Won Sohn said he still thought businesses large and small had the cash and demand that would cause them to add workers. However, he said, oil prices have made employers nervous and sapped consumer purchasing power, causing the current slump.

"To me, oil is really the biggest factor," Sohn said. His calculations of oil supply and demand show that crude oil futures are about $10 higher than they should be, owing to speculation and uncertainty.

Luskin said oil fears had caused investors to dump stocks at a time when corporate earnings are strong, and he said the same uncertainty made managers reluctant to increase payrolls.

"If you're a CEO, and you see oil futures at $44 a barrel, and one of your division managers asks you for 12 hires, and you're not sure if oil is going to keep going up, you're going to rip up the paper," Luskin said.

Taken together, this week's economic data and market trends raised questions about whether a midyear slowdown in the economy had turned into something more serious. At the same time, though, new reports this week showed the economy had significant reservoirs of strength.

On the downside, consumer spending fell in June, and same-store retail sales were weaker than expected, worrisome indicators in an economy driven by consumer spending.

Yet a key index of future manufacturing activity jumped in July, new car sales rebounded, and several measures of consumer confidence remain high, indicators that bolster the view that the economy's recent softness is just a pause.

President Bush, speaking to minority journalists holding a convention in Washington, D.C., made no mention of the jobs report but said the U.S. economy was "strong and getting stronger."

The White House also issued a statement stressing the 5.5 unemployment rate was the lowest since October 2001 and noting that the economy had created 1.5 million payroll jobs since last August.

"The president keeps saying we've turned the corner," Democratic presidential candidate John Kerry said in a statement. "But unfortunately, today's job numbers further demonstrate that our economy may be taking a U- turn instead."

July's job gains were the smallest since December and far below the roughly 150,000 jobs that economists believe are needed to ensure that employment levels keep pace with the expansion of the workforce because of factors such as population growth and immigration.

"Typically, at this stage of a recovery, the economy would be creating over 200,000 jobs per month," said Heather Boushey, an economist with the Center for Economic and Policy Research, a left-of-center think tank in Washington, D.C.

The economy seems to be undergoing shifts in work patterns that partly explain why the unemployment rate hasn't risen, even though the creation of payroll jobs is weak.

Andrew Sum, director of the Center for Labor Market Studies at Boston's Northeastern University, explained that the job creation number was derived by asking employers how many formal positions they had created. The unemployment rate is based on a separate survey of households.

In this household survey, Sum said, if people are working, even if they're freelancing or getting paid off the books, they're counted as being employed.

Sum said his studies indicated that many people were opting for self- employment or informal employment because they can't get the sort of formal job that would register in the employer survey.

"I'm not saying that everything is hunky-dory," Sum said, adding these informally employed people might be working for less, or without benefits.

Sum said he had no idea whether this shift toward self-employment or contract work was a temporary adaptation to a tight labor market or the beginning of a change in the workforce.

But what is clear is that the economy isn't producing as many payroll jobs -- the sort that would show up in the employer survey -- as economists had expected.

Despite Friday's news, most observers still expect the Federal Reserve to tighten rates another quarter-point next week when its policy-setting committee meets. But there's less certainty about what the central bankers will do at their four subsequent meetings before year end -- or whether Fed Chairman Alan Greenspan still believes the summer softness is temporary, as he has stated on several occasions.

The Fed has embarked on a measured approach to raising interest rates from their historic lows, starting with a quarter-point rate increase in June.

$44.02

Crude oil per barrel

Oil prices have rocketed 30 percent this year on terrorism fears and problems in Russia. The resulting higher energy costs are draining spending power from consumers and businesses.

The Dow Jones average and other major stock indexes plunged 3 percent or more this week on worries that a flagging economy will hurt corporate profits.

5.5%

Unemployment rate

The jobless rate continues to fall, even though experts say the economy must add 150,000 jobs or more a month for that to happen. Some theorize that growth in the number of self-employed and contract workers - who are not counted in the job creation figures - is what is pushing the unemployment rate down.